How start-ups can prepare for a Merger or Acquisition (M&A)

prepare for a Merger or Acquisition

Caitlyn Buchanan, 28th July 2020

Mergers and Acquisitions are a time of change and opportunity for entrepreneurs. When preparing for a Merger or Acquisition there are several key steps and considerations to be made.

What is the Difference Between a Merger and an Acquisition?

Mergers and acquisitions (M&A) are transactions where the ownership of companies is transferred or consolidated with other entities. Although often grouped and referred to as M&A, the two are very different. Mergers are when two businesses that are similar in size join to form a new single entity. Mergers can be an effective way to pool resources and take over a larger piece of the market. An acquisition is when one company absorbs another, establishing itself as the new owner. From a legal point of view when a company is purchased and acquired it then ceases to exist. Acquisitions are often used to inherit the customers, contracts and, processes of a rising competitor or a business that offers a complimentary service that the acquirer could not previously provide.

Many entrepreneurs from start-up companies to be bought over at some stage. Business acquisitions create a great opportunity for entrepreneurs to generate capital which can be used to start their next venture. This is particularly common in the tech industry. Tech giants such as Facebook and Google often acquire rising start-ups as they gain recognition in the industry. Whether an entrepreneur intends to sell their business entirely or continue working within the merged or acquired entity this guide can help you to develop a strategy and increase your likelihood of success.

How to Prepare for a Merger or Acquisition

1. Non-Disclosure Agreement

The first step when preparing for a merger or acquisition is to draft an appropriate NDA. A non-disclosure agreement (NDA) serves as a binding contract to ensure that sensitive information is kept confidential. It is recommended to have the NDA fully signed before any conversations with potential acquirers or merger partners. When entering acquisition discussions, you may also consider adding an employee non-solicitation provision.

2. Legal Advice

It is advisable to seek a solicitor’s assistance to ensure your NDA is effective and legally binding. Additionally, the parties involved will likely require your company officials to sign their NDA. A solicitor can review the NDA to ensure you are not agreeing to any terms that the company is not prepared to meet.

Even if you have chosen not to involve a solicitor in the early discussion stages it is highly recommended that you engage experienced M&A counsel when you proceed with selling or merging companies. This may sound like common sense, but each party involved should engage their solicitor to protect their interests. Do not rely on advice from another party’s counsel, they will be acting in their client’s interest and not yours.

3. Negotiations by M&A Committee

It is best practice to form an M&A Committee when preparing for a merger or acquisition. An M&A Committee should consist of members of the board to negotiate the terms of a merger or acquisition. A committee would be responsible for managing reports, identify potential issues, and helping to make effective decisions relating to each phase of a merger or acquisition opportunity. Having an M&A Committee can reduce risk, prepare financial analysis, and ultimately close a deal in the final stages. An ideal acquisition process would be run as an auction to achieve the best terms and or price. When selling a company, the seller should always insist on their counsel to prepare the first draft of the merger or acquisition agreement.

4. Letter of Intent

A buyer will try to lock-in their deal with a letter of intent, this will often include an exclusivity period of 30-60 days. It is in the best interest of the seller that the letter of intent has an even shorter exclusivity period and very detailed terms of price, escrow, warranties, the scope of representation, and indemnification provisions.

5. Continue Operating as Normal

The M&A process will take time and the process can be distracting for management and employees. The business must continue to operate as normal and strives to meet current targets. A buyer or merging partner will closely monitor the financial performance of the company to validate the seller’s projections. In a merger situation, your company will need to do the same to ensure you are merging with a company that can deliver on their promises.

It is important to seek professional advice to prepare for a merger or acquisition. Your company’s normal solicitor may not be experienced in this process, if this is the case, please do not hesitate to Contact Us today. We work with a large network of legal professionals within Ireland and we would be happy to put you in touch with an experienced M&A professional.

Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change. 

Despite the current restrictions around Covid-19, we are still very much open for business and available to assist you by phone, email, Skype and Zoom. We can facilitate new Irish company formations and all other services remotely during this time. Order a Company Online
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